Lions Gate Roars, Wall Street Yawns

Life, as the saying goes, is not always fair.

Three months ago, independent filmmaker Lions Gate (NYSE:LGF) shocked the conscience of the Street when it reported profits $0.15 short of analyst predictions. The shares promptly sold off by nearly 8%. On Friday, the company roared back into business with a $0.06 per-share profit -- $0.10 ahead of consensus -- but the stock barely moved on the news.

No respect
There's no two ways about it: Lions Gate's performance in fiscal Q1 2009 was a blockbuster. Revenue came in at $298 million, 50% better than last year, and the company earned $7 million instead of losing $53 million.

The company's products keep popping up on screens both large (Saw IV,Rambo, and the superb 3:10 to Yuma) and small (Weeds on CBS's (NYSE:CBS) Showtime network, Mad Men on Cablevision's (NYSE:CVC) AMC, Fear Itself on GE's (NYSE:GE) NBC, and of course, Tyler Perry's House of Payne on Time Warner's (NYSE:TWX) TBS.) But like the late Rodney Dangerfield, who has more than one film in Lions Gate's library, this studio gets no respect.

But does it deserve respect?
While I spoke highly of the company last quarter, I'm not so sure anymore. For one thing, I fear its collaboration with Viacom (NYSE:VIA) and MGM to establish a new network could sour one of Lions Gate's great successes -- its relationship with up-and-coming pay-cable network Showtime.

Turning to matters more numerical, for all its good GAAP news, Lions Gate didn't do so hot on the cash flow statement this time around. Free cash flow for the quarter ran negative to the tune of $152.1 million, a cash loss nearly three times as large as last year's. (In related news, the company secured a $340 million revolving credit facility from JPMorgan Chase (NYSE:JPM) to keep its doors open.)

Respect demands disclosure
What I find more disturbing than the actual number, however, is Lions Gate's attempt to bury it. In past earnings reports, free cash flow gets pride of place in the headlines for Q4 and Q2 earnings -- when the news was good. Likewise in Q3. But Lions Gate prefers to downplay negative cash flow. You won't see it mentioned in the prose portion of last year's Q1 report; nor in this year's.

So why are investors disrespecting Lions Gate? Simply put, respect is a two-way street. If Lions Gate wants to earn our respect, it needs to respect our intelligence, and quit moving the goalposts.

What did we expect out of Lions Gate last quarter, and what did we get? Find out in:

• Lions Gate Is the Cat's Meow
• Foolish Forecast: Lions Gate Is a Bad Kitty